Correlation Between ProShares UltraShort and Invesco Dynamic

Can any of the company-specific risk be diversified away by investing in both ProShares UltraShort and Invesco Dynamic at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ProShares UltraShort and Invesco Dynamic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ProShares UltraShort Consumer and Invesco Dynamic Food, you can compare the effects of market volatilities on ProShares UltraShort and Invesco Dynamic and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ProShares UltraShort with a short position of Invesco Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of ProShares UltraShort and Invesco Dynamic.

Diversification Opportunities for ProShares UltraShort and Invesco Dynamic

-0.53

Correlation Coefficient

ProShares UltraShort  Invesco Dynamic

Excellent diversification

The 3 months correlation between ProShares and Invesco is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding ProShares UltraShort Consumer and Invesco Dynamic Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Food and ProShares UltraShort is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ProShares UltraShort Consumer are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Food has no effect on the direction of ProShares UltraShort i.e., ProShares UltraShort and Invesco Dynamic go up and down completely randomly.

Pair Corralation between ProShares UltraShort and Invesco Dynamic

Considering the 90-day investment horizon ProShares UltraShort Consumer is expected to under-perform the Invesco Dynamic. In addition to that, ProShares UltraShort is 1.71 times more volatile than Invesco Dynamic Food. It trades about -0.05 of its total potential returns per unit of risk. Invesco Dynamic Food is currently generating about 0.02 per unit of volatility. If you would invest  4,558  in Invesco Dynamic Food on September 20, 2024 and sell it today you would earn a total of  143.00  from holding Invesco Dynamic Food or generate 3.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

ProShares UltraShort Consumer  vs.  Invesco Dynamic Food

ProShares UltraShort

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares UltraShort Consumer are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, ProShares UltraShort may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco Dynamic Food

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Dynamic Food has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady fundamental drivers, Invesco Dynamic is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with ProShares UltraShort and Invesco Dynamic

The main advantage of trading using opposite ProShares UltraShort and Invesco Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares UltraShort position performs unexpectedly, Invesco Dynamic can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Invesco Dynamic will offset losses from the drop in Invesco Dynamic's long position.

The idea behind ProShares UltraShort Consumer and Invesco Dynamic Food pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.